It's 'doom and gloom' time (again…….)

Can we be serious for a moment? Interest rates are hovering around 5% (& below) ATM. Traditionally, in the variable IR world, they hover around 6-7% or thereabouts long term.
When the purchaser applied for the mortgage, his/her serviceability was calculated on current IR +2% to even be given the loan.

Now IRs moved up 0.2% and this is supposed to signal D&G times coming? Pleeeeeease

 

Yes they do
This my favourite article keep regurgitating it, but so true.
10 reasons why economists get it so wrong

1. Forecasting doesn't work and never did. Like weather forecasts, which are based on physical parameters (not pschological--like economics), it's always a hit or miss affair. [Obviously, neither Schiller nor Avniel are aware that weather forecasting is the most accurately predictive vocation of all professions. That's a scary fact!]

2. You can't predict a turning point. It's the old issue of will this turn into a horrible recession, or merely a blip on the radar for the next 15 months?

3. Economic models assume that economies are stable. Data, such as bond ratings and debt structures, are never stable.

4. Economists tend to focus on specific, accepted parameters and ratios. As a result they fail to see warning signs unless they hit them over the head.

5. Economists are afraid to break rank with the consensus. If they're wrong, it's career suicide. Since no one dares to say otherwise, the consensus grows stronger and becomes even harder to buck. In other words, economists are human, and they err.

6. Forecasts, of themselves, affect the economy. The forecast becomes part of the "given," and influences human behavior--for good or ill.

7. Forecasts influence politicians. A politican approaching an election will treat a forecast differently than after he/she's elected. The most relevant example is Germany and Angela Merkel. All forecasts depend on how Germany and Merkel behave, but nobody really knows how they will behave.

8. People look for shortcuts, but there aren't any. Robert Shiller said the market failures of the recession were foretold in the economic literature, but nobody looked at the data. Just the bottom line. The devil is in the details but if you don't read the details, you'll get caught up.

9. Economists believe their own stories. "This time it's different, or our case is different." It never is. They thought, for example, that securitizing debt would change the world and that economics would start acting differently. But it didn't, and the world exploded.

10. When the economy is roaring and soaring, control mechanisms collapse. We make our biggest mistakes when the future looks very, very sunny

 

South Australia is a beautiful state and one of its biggest industries is winemaking. Given people from Qatar are generally non-drinkers, I suspect operating direct flights will be more about getting Australians overseas rather than getting Arabs to Adelaide.

Do you have racehorses? Or maybe they want to buy some good car manufacturing equipment, already depreciated.

 

Nah. Doha is just a transit hub for people to travel between Australia and Europe. Just like Dubai as hub for Emirates (and the reason why Qantas forged a partnership with Emirates and dumped British Airways).

 

Sounds like a list for GW as well.

 

Traditionally the variable loan amounts were also lower. These days the level of household indebtedness will amplify the effects of small rate rises. You see what's happening recently in the real world after these small rate hikes - clearance rates in Spring lower than Winter!

The 7% floor rate used for serviceability is for risk mitigation -- it means the borrowers will be able to absorb it, but will it make them confident in buying properties when it hits 7%?

Now let's be serious, reasonable and realistic!

 

I don't think the decline in Perth has "happened" at all but it is happening. 12-18 month minimum IMO. Long, slow decline.

 

Seems Barratt from the AFR concurs

http://www.afr.com/real-estate/pert...xperts-warn-more-pain-to-come-20151006-gk2r4t

 

Hi Alan - out of intrigue/interest, how does the BA business fare for you in the quietest of quiet times? Especially in the real doom times? Are you impacted or is there still a fair share of market open to get into IP?

 

Interesting to hear from a local.
Not a time to jump in, wait and see.

 

Hi @MsAli,
We have not had any quiet times in the BA business so far - and I hope we are not about to find out
Even in the depths of the GCF we were having a housing boom if you recall.
Like any business, we just adapt and move with the times - sometimes the real doom times present some of the best opportunities. Fearful vendors and opportunistic investors make for some great buys.

 

It's interesting because analysts are calling Perth undervalued. Yet go to many home opens and you will be the only person there. Of course well priced houses in popular areas are still selling well, but nothing like to boom. It's down to buyer and investor sentiment. While we think the market it falling, we don't buy. With no one buying, the market falls.

 

It's refreshing to hear someone from an area giving an honest opinion of that area, rather than just talking it up for personal interest.

 

I'm in Queensland and in paper says "prices up!" on the real estate section but then you check On the House and other sites and they're down down down.

We've been to many home opens and we were the only people. One place started at $399K and within six months has come down to $345K. It's now ten months on the market with no sale.

I've been watching a bunch of properties for a while now and when they finally do move it's always cheaper than asking by between $10 - 40K. Yet look up the "official" stats and that isn't reflected.

Rents are flat or falling too.

We did the sums and the rate of fall in prices exceeds what it costs us to rent each year so we're in no real hurry to buy despite being able to.

 

Not much point buying in a falling market unless you are keen on losing money

 

Hey @MGF , which area is this in?
I'm getting interested

 

We're getting pretty tired of renting which will probably be the push ultimately. Although I fully believe prices will drop by a significant amount, we just can't keep renting.

Can't paint a wall, can't take down blinds and put up curtains, can't improve the garden. All that emotional stuff. The inspections every quarter.

It's hard from the seller side too. A couple we know have had their property on the market for a while now and they have had zero interest. The prices have fallen such that if they cut it down to market rates they'll emerge with near zero equity. They've had another kid, want to change where they live for that and other reasons but they can't move until the house sells and the longer they wait, the worse the outcome. Another six months to a year and even if they sell it they'll be leaving with a debt.

 

If you are keen to buy a PPoR, and plan to live in for a long time, does it really matter if the market is going backwards at the moment?

If you can afford to buy, and are sick of renting; why not find a nice house and buy it?

You will be happy, and you might be relieving a Vendor from more financial pain - making them happy too..

Take off your investor hat for this one.

Just to make you feel better about that; my PIL's bough their house back in the mid 60's for approx $8k. They still live in that house, and now it is worth approx $480k based on recent similar sales nearby.

In the long run; your PPoR will be worth more than now, so a few grand paid above before the market bottoms is not going to affect you.

 

It helps to not be in a rush. If they're able to suck it up and make do for a while longer they should be Ok.

 

If they aren't willing to meet the market, cut their losses and move on, then they are idiots that deserve no sympathy.
After all the position they are in, is a result of their own poor decision making, lack of due diligence, foresight, whatever it may be.